Are You Guilty of The Three Most Common New Trader Mistakes?
Every trader makes mistakes. It’s all part of the process. There’s no shame in it if you’re just getting started – it happens. But to stick around for the long-haul, you have to learn from those mistakes. Never sweep them under the rug or act like they never happened. If you do, you’ll find yourself guilty of committing the same errors over-and-over again.
Take ownership of your past mistakes and keep them in your memory so that you never have to deal with their costly consequences again. You can become the consistent, successful trader you’ve always wanted to be. But it’s time to rid yourself of the most common mistakes new traders make and clean up your approach. It’s time to start profiting.
Do Any of These Blunders Sound Familiar to You?
#1 Over-Allocating Capital Into One Position:
No one trade will make you rich. But one bad trade can completely blow up your account. If you have all of your eggs in one basket every single time you make a trade, then your portfolio is bound to take a huge hit at some point. There’s absolutely no reason to open up your account to that sort of unnecessary risk. Allocation of roughly 5-10% of your portfolio per trade is standard practice.
Thinking you can never lose in the market is ignorant, so allocation needs to be properly managed with that in mind. Trading is not gambling (unless you want it to be), but it does involve taking calculated risks. You can consistently put the odds in your favor so that you profit more often than not, but there will be losses along the way – plain and simple.
#2 Trading Emotionally and Without a Plan:
All great traders start with a plan before entering every single position. That plan includes not only the entry price, but also the exit price – whether the stock moves up or down. A great deal of novices don’t think about a trade in it’s entirety until after the fact. They enter and tell themselves “I’ll sell if it goes up a lot” or “I’ll exit quickly if it goes down”. Needless to say, that’s a flawed, ambiguous plan.
It leaves too much opportunity for emotions to come into play. Have you ever entered a losing trade and found yourself continuously trying to rationalize your position as it goes against you? With a proactive plan, there’s no midstream rationalizing. If it hits your stop, you’re out of the trade completely. And if it hits your profit goal, you take at least half off the table and move up your stop in order to lock in the win. Control your emotions and be rational – it will lead to more consistent, disciplined trading.
#3 Skipping the Study and Practice Phase:
This is the mistake that personally bothers me the most. Too many newbies expect to jump right into the markets and start raking in substantial profits. No studying. No effort. All they want are “Hot Picks”. Then they proceed to complain when some guru recommends a losing trade or they get caught up in some sort of Pump and Dump.
Don’t fall for the shortcuts. Becoming a great trader takes times and effort. Sure, a quality service or newsletter can help shorten the learning curve substantially, but it still requires hard work and dedication on your end. Being an ignorant, uneducated trader will cost you massive amounts of money in the long-run. Never forget the benefits of Paper Trading either, a risk-free approach that allows you to practice any potential strategy you want. Study, learn concepts, and become self-sufficient – it’s the only way to succeed.
#4 Trying to Be a Jack-of-All-Trades:
There’s nothing wrong with experimenting with various strategies, but over time, your approach should be refined down to just one or two things. Whether you realize it or not, there are hundreds of thousands of opportunities in the market every single day, and unfortunately, you simply can’t capitalize on them all. When you chase everything, you don’t catch anything.
The point I’m trying to make is that it pays off to specialize. Being great at just one strategy can provide you with ample profits. Being decent at a bunch of things will just leave your portfolio stagnant. It’s the same concept that can be applied to the sporting world. Professional football players oftentimes only play one position, for example. Since they specialize at it, they excel. If they had to split up their time and focus between every single position on the field, then they’d have a much harder time excelling at anything.
Conclusion: Mistakes Happen – Learn From Them and Become a Better Trader Because of It
Bottom Line: If You Want to Be a Successful Trader, Then You Need to Study, Practice, Stay Disciplined, and Pursue a Strategy That Fits Your Lifestyle & Preferences.
Are You Guilty of Any of These New Trader Mistakes? Share Your Experiences Below.
Written by Matt Thomas (@MattThomasEST)
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